Pay for Today (and Tomorrow): Compensation in the Nonprofit Sector (DC)

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Lately, it seems that any sentence containing the words "nonprofit" and "compensation" is related to the scrutiny of pay provided to the presidents and other top executives of organizations. However, for most nonprofit organizations, far more compensation dollars are paid to the broader, non-executive employee population. My presentation from the October 2010 Nonprofit Human Resources Conference in Washington, DC focuses on prevailing practices and emerging trends regarding compensation in the nonprofit sector, including the impact of internal and external influences.

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Pay for Today (and Tomorrow): Compensation in the Nonprofit Sector (DC)

  1. 1. Pay for Today (and Tomorrow): Compensation in the Nonprofit Sector 2010 Nonprofit Human Resources Conference October 4, 2010 Joe Brown sloperesources.com
  2. 2.  Founded Slope Resources in 1998  Human resources and organization management consulting services for nonprofits  Compensation and performance management  “Big firm” background  Blog: Done by People Who am I?
  3. 3.  Budget size?  < $10 million  $10 - $20 million  $20 - $50 million  > $50 million  Staff size?  < 10 employees  10 – 50 employees  50 – 100 employees  > 100 employees Who are you? ?
  4. 4.  Human resources responsibility?  Geography?  DC / Virginia / Maryland  New York / Boston / Northeast  Midwest  South  West Who are you? ?
  5. 5. A bit of philosophy… “This is not charity. This is business. Business with a social objective…” --Muhammad Yunus
  6. 6. …leads to three principles  Market  Equity  Performance
  7. 7. Executive pay…
  8. 8. …versus employee pay
  9. 9.  Where have we been?  Where are we now?  What’s next?  What to do?  Questions and discussion This afternoon…
  10. 10. Where we have been?
  11. 11. Where we have been?  Nonprofit compensation has traditionally lagged behind for-profit sector  But difference varies by level Nonprofit For-profit Job "size" Totalcompensation
  12. 12. Where we have been?  Nonprofit compensation has traditionally lagged behind for-profit sector  Difference also varies by function  Market comes into play  “Nonprofit” jobs versus “regular” jobs  e.g. development, program vs. IT, finance  Differences even within “nonprofit” jobs  e.g. direct service vs. program development
  13. 13. Where we have been?  Year-to-year salary increases have generally tracked for-profit practices  “Four percent world”  But, increases have tended to be more homogenous  Across-the-board, COLA  Rather than performance-based  Entitlement mentality
  14. 14. Where we have been?  S l o w shift to performance-based (“merit”) pay  Pay levels, increases, staffing levels, even job titles often limited by grant budgets, etc.
  15. 15. Where we have been?  Bonuses Incentive compensation  Prevalent but limited  For many organizations, not the answer  Perception, complexity, ROI  Instead…  Get the basics right!
  16. 16. Where are we now?
  17. 17. Where are we now? “It’s the economy, stupid.” --Bill Clinton, 1992
  18. 18.  Well-documented (and experienced) impacts  Decreased funding from all sources  Closures  Layoffs, furloughs, salary freezes, salary cuts Where are we now?
  19. 19.  Well-documented (and experienced) impacts  Decreased funding from all sources  Closures  Layoffs, furloughs, salary freezes, salary cuts Where are we now? ? How many of your organizations have not experienced any of these impacts on compensation in last three years?
  20. 20.  All compensation growth limited  Now a “zero to two or three percent world”  More difficult to offer “rich” benefits  Greater differences in demand within nonprofit sector  e.g., development vs. program Where are we now?
  21. 21.  Greater access to general market talent  e.g., IT positions  Caveat emptor!  Increased demand for performance and accountability  Funders, public  Emphasis on evaluation and measurement  Has to translate to employee performance! Where are we now?
  22. 22. What’s next?
  23. 23.  Increasing need to compete for talent  Most bang for the buck  Labor shortage (!)  New sectors  e.g., social enterprise, B-corporations What’s next?
  24. 24.  Generational forces  Demand for competitive – or at least living – wages  Shifting benefit needs/desires What’s next?
  25. 25.  Public, government, and funder scrutiny  May spread to non-executive levels What’s next?
  26. 26.  Public, government, and funder scrutiny  May spread to non-executive levels  Increased compression  Also, focus on low end  Increasing professionalization of nonprofit sector What’s next?
  27. 27.  Increased recognition of the need for broader organizational support  “Administrative”, “overhead”, “indirect costs” and organization development  GAO report recognized differences in federal grants  Growing recognition and support in philanthropic community What’s next?
  28. 28. What’s next? ? What other trends impacting compensation are your organizations experiencing or anticipating?
  29. 29. What to do?
  30. 30.  There is a silver lining to the times:  “Pause” in the compensation market  Limited expectations What to do?
  31. 31.  Assess your organization’s current compensation practices  Do you have comprehensive formalized compensation structures and policies?  Assess internal equity – the relationship between job size and current compensation What to do? $0 $20 $40 $60 $80 $100 Job Size Compensation
  32. 32.  Assess your organization’s current compensation practices  Assess market competitiveness  What market(s)?  Benchmark data  Understand what is important to employees  Targeted research or component of broader culture/opinion assessment What to do?
  33. 33.  Develop a compensation philosophy  What do we pay for?  What market(s) are important to compete with?  At what level?  Are there differences by function or level that we will reflect in our policies and practices?  How will we assess and manage compensation over time? What to do?
  34. 34.  Enhance linkage between compensation and performance  Ensure comprehensive performance management program is in place  Pitfalls:  Focus only on evaluation, not management  Measuring the wrong things  Unclear/diluted/nonexistent relationship between compensation and performance management programs What to do?
  35. 35.  Enhance linkage between compensation and performance  Measure skills, competencies, results, goal achievement  Break entitlement mentality if it exists  Help employees understand and accept compensation and performance realities What to do?
  36. 36.  Use compensation program to inform funding requests  Look beyond the paycheck  Assess currency, competitiveness, and value of traditional benefits  Explore low-cost/no-cost options  Recognition  Flexibility of time and place  Lifestyle perks What to do?
  37. 37. What to do? ? How else can organizations respond to today’s environment and emerging trends impacting compensation?
  38. 38. Questions and discussion
  39. 39. Joe Brown jbrown@sloperesources.com 908 241-8592 sloperesources.com twitter.com/joe_brown Thank you!

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